Campaign contributions not enough to establish arbitrator partiality

When James Freeman and his former employer Pittsburgh Glass Works (PGW) selected an arbitrator to settle Freeman’s age discrimination claim against the company, Maureen Lally-Green topped both parties’ lists. She remained the top selection even after informing both parties prior to arbitration that she “knew some people” at PGW’s minority owner, PPG Industries (PPG).

According to PGW, she also told both sides at the time that she had taught a labor law seminar with Joseph Mack, a senior employment attorney at PPG, although Freeman denies this. At any rate, Lally-Green heard the arbitration proceedings and ultimately rejected Freeman’s age discrimination claim.

Three months later, Freeman filed a district court motion to vacate Lally-Green’s arbitration decision. He noted that during a failed 2009 bid for a Pennsylvania Supreme Court seat, Lally-Green had received $4,500 in political contributions from PPG and its employees, a fact that she had failed to reveal prior to arbitration. The campaign cash, paired with Lally-Green’s teaching relationship with Mack, demonstrated evident partiality in violation of Section 10(a)(2) of the Federal Arbitration Act, Freeman argued.

The district court, however, denied his motion, finding that Lally-Green’s nondisclosures were not evidence of bias. On March 6, a three-judge panel for the 3rd Circuit unanimously upheld the decision in Freeman v. Pittsburgh Glass Works.

“The courts are trying to signal they don’t want to hear appeals like this, and that the bar is very, very high to meet and make a showing that your arbitrator showed evident partiality,” says Liz Kramer, a shareholder at Leonard, Street and Deinard and author of the “Arbitration Nation” blog.

Separate Standards

The court specifically distinguished between the evidence needed to dismiss an arbitrator and the evidence needed to dismiss a federal judge. Freeman argued that “evident partiality” included even the appearance of bias, which would be enough to trigger the recusal of a judge. But the 3rd Circuit found that evident partiality arises only if “a reasonable person would have to conclude that [an arbitrator] was partial to one side.”

Lee Steven, counsel at White & Case, says that this distinction makes sense given the nature of an arbitrator’s forum. “When the parties are the ones choosing the adjudicator in the case of arbitration, then you should have a slightly lessened standard, in part because [the parties are] in control of the process, whereas you don’t have that choice in the case of a court litigation,” he says.

The court found that neither Lally-Green’s teaching relationship nor her campaign contributions demonstrated bias. Although it “might have been preferable” for Lally-Green to disclose her teaching position, the evident partiality standard requires more than “suppositions based on mutual familiarity,” the court wrote.

As for the campaign contributions, the 3rd Circuit noted that PPG’s contributions constituted less than 1 percent of the $1.7 million in donations that the judge raised. And, considering that “campaign contributions are a way of life in many state judicial systems,” the court found that it would be an undue burden to consider them proof of bias.

Even if the contributions were evidence of partiality, the court added, they would not indicate that Lally-Green was biased in PGW’s favor because the law firm representing Freeman had donated about $26,000 to the judge’s campaign—roughly five times as much money as PPG.

Arbitration Advice

Despite the high bar for vacating arbitration awards, Kramer predicts that cases such as Freeman may persist, partially owing to increased social media usage. Digital ties—however tenuous—between an arbitrator and a party in a given case could provide a rationale for unhappy parties seeking to challenge an award.

Experts say counsel should raise any possible objections about arbitrators before the start of proceedings (see “Early Objections,” p. 58). Given that many arbitrators are industry experts, that is sometimes easier said than done, however.

“You’re going to get people who are knowledgeable and more in touch with the transaction,” Stevens says. “But that means you’re going to have to be dealing with people who potentially have some connections [to a given industry or party].”

To avoid—or at least minimize—such conflicts, both Steven and Kramer advise counsel to thoroughly research potential arbitrators. “[The investigation] can include hiring a private investigator, if it’s a really big-dollar, high-stakes case,” Kramer says. “Or it can just mean assigning a law clerk to do a lot of Google searching and some careful thinking about what … professional connections [arbitrators] may have to the other parties in the case.”